The Thomson Reuters CoreCommodity CRB index, which includes 19 commodities, fell 1.33 percent to 214.97, its lowest level in three months.

"Investors are concerned about China because that is a long-term issue. A slowdown in that economy has a much bigger and longer lasting impact," said Michael Joyce, President of JoycePayne Partners.

At 12:40 p.m. ET the Dow Jones industrial average was down 87.99 points, or 0.5 percent, at 17,595.59 while the Nasdaq Composite was down 50.07 points, or 1 percent, at 4,941.87. The S&P 500 was down 8.21 points, or 0.4 percent, at 2,060.55, after briefly falling below its 200-day moving average.

Eight of the 10 major S&P 500 sectors were lower. The materials index index led the declines with a 1.3 percent fall, weighed down by a strong dollar and the slide in commodity prices.

Financials were down 1.1 percent as U.S. Treasury yields tumbled. The sector had been on the rise in the past few weeks as prospect of a Fed rate hike boosted banking stocks. JPMorgan, Citigroup and Bank of America were all down between 2 and 3 percent.

The dollar index was up 0.74 percent at $97, its highest level in a month, a day ahead of the start of the earnings season in the United States.

A stronger dollar reduces income from overseas. Corporate profits are expected to have fallen 3.1 percent in the second quarter, according to Thomson Reuters data.

Advanced Micro Devices shares slumped 15 percent to $2.10 after the chipmaker cut its quarterly revenue forecast. Its warning of weaker-than-expected PC demand weighed on the broader semiconductor index, which fell 2.15 percent to its lowest level since February.

Shake Shack fell 10.3 percent to $52.92 after a Morgan Stanley rating cut to "underweight", according to theflyonthewall.com. Tesla fell 4.7 percent to $266.59 after a Deutsche Bank downgrade to "hold" from "buy".

Depomed soared as much as 39 percent to a record high of $28.75 after Horizon Pharma announced a hostile offer for the drugmaker. Horizon fell 2.5 percent to $33.75.

Declining issues outnumbered advancers on the NYSE by 1,975 to 1,047. On the Nasdaq, 2,113 issues fell and 580 advanced.

The S&P 500 index showed six new 52-week highs and 48 new lows, while the Nasdaq recorded 30 new highs and 154 new lows. (Editing by Savio D'Souza)